Anyone familiar with large organizations has probably heard the phrase “you can’t manage what you can’t measure.” For most of my management and consulting career, I took this as a truism. Not any more. A recent client engagement and a review of the latest research have taught me the dangers of relying too heavily on metrics, especially bad ones, to spur better business results. This is not to say that metrics have no role; far from it. However, leaders should use them sparingly and consider alternative motivational tools.

Take, for example, work we recently did with a financial services institutions, which had historically earned above industry returns. Since 2009, it faced two significant headwinds: first, mounting customer churn that marketers believed traced to product issues; and, secondly, shrinking margins, driven by steadily increasing costs and a perceived inability to raise prices. Not surprisingly, employee engagement scores were also floundering. The company was looking to understand what was really going on and improve operational performance. After undertaking a root-cause analysis, we discovered that many of the problems stemmed from the poor choice and management of newly established metrics. Our fix was relatively simple (though a challenge to sell through parts of the organization): get rid of some (but not all) of the new metrics and focus on a few key performance indicators (KPIs).

CEOs looking to improve corporate performance without damaging employee engagement should heed the following lessons. They include:

Metrics mask problems

Companies often use a metric without understanding what they are trying to improve. For example, our client added a new metric, customer satisfaction, without thinking through what the internal and external drivers of the higher churn were. The first two customer surveys were telling: satisfaction went up but so did churn. After a deeper analysis, we found that the churn traced primarily to poor service and communication of the product’s value not product performance, which the new metric was based on. This blunt metric led management to focus on the wrong things.

Metrics create conflict

Very often metrics are used in functional or divisional silos, with little consideration paid to how they negatively impact other group’s performance and results. For example, a procurement department’s metrics around cost reduction can put it into direct conflict with the manufacturing group, which is measured on just-in-time raw material supply. Manufacturing managers would understand that paying higher prices is necessary to achieve their objective.

Managers become overly focused on metrics and not performance

Many employees focus their efforts solely on the metrics by which they are measured on. However, their actions may not be congruent with what’s best for the business. This misalignment can be illustrated by the attention paid to measurement systems like scorecards. Many of my client’s managers spent upwards of 20% of their valuable time managing around scorecards — collecting data, positioning the numbers and lobbying their ‘story’. Their efforts would have been better spent on other (non-measured) corporate goals like innovation and coaching.

Metrics lack credibility

Some common measures like brand image and employee engagement lack sufficient credibility to motivate many workers and trigger improved performance. These metrics are often viewed as disconnected from everyday reality, obtuse or too blunt to be practically influenced. This metrics-induced “credibility gap” contributed to the client’s low employee engagement scores.

Metrics can lead to unintended consequences

Unexpected things happen when organizations focus on some metrics. The pursuit of revenue goals led some members of the company’s sales and service teams to do things that were inconsistent with company values, teamwork and ethical behavior.

Where do we go from here?

To reiterate, metrics are not bad per se. Bad metrics are bad. We recommend firms take three steps to reduce metric madness:

Know thyself

Really understand your business and customers, and what drives performance. Make sure existing metrics reflect these key drivers. Furthermore, create new Key Performance Indicators (KPIs), if necessary, that can act as proxies for many essential activities. For example, a ‘ship on time, in full’ KPI illuminates a lot of information about a firm’s production, logistics, service and inventory management performance.

Less is more

There should be no more than four to five organization-wide (not siloed) measures that encompass all facets of the business. Take care not to over-manage these through scorecard creation and reviews. However, changing metrics may require the organization to revamp its compensation and performance measurement systems.

Manage people not numbers

It’s people who generate value, not metrics. This fact may be inconvenient or difficult for some managers but it is a prerequisite for higher performance and engagement. Changing a status quo that benefits many people and is part of a legacy culture is tough. Leaders need to be bold and stick to their guns. It is well worth it.

Most companies are using social media exclusively to drive marketing objectives such as building product awareness or highlighting new promotions. A small number of dynamic organizations, however, have deployed social media as an instrument to improve employee productivity and engagement. Research suggests that (at least for now) the biggest payoff from social media will come from higher corporate productivity in terms of better communications, enhance data management and improved collaboration. As such, leaders should consider adding internal social media tools as part of their corporate social media plans. However, they need to be mindful of organizational challenges that can limit the payoff.

Social media has hit the big time. According to comScore more than 1.5B consumers worldwide are registered on a social networking site. Almost 20% of the time online is now spent on social network sites, triple the amount spent in 2008. Not surprisingly, marketers have been the first to exploit this growth by launching new advertising programs, setting up their own social sites and engaging in real-time dialogue with their consumers. This initial consumer focus has produced crucial insights on how people interact with the technology as well as communicate and collaborate with each other. Savvy managers are analyzing these learnings and the experiences of some early adopters to explore how their firms can leverage social media inside the organization.

When properly designed, social media applications can dramatically improve communications, knowledge management and collaboration within and across the organization and with external stakeholders. The McKinsey Global Institute estimates that in the packaged goods, consumer finance, advanced manufacturing and professional services sectors alone, new social technologies can produce between $900B to $1.3T in value creation. Two-thirds of this benefit would come from improving collaboration and information flows between knowledge workers in the product development, marketing, customer support, sales and operations departments and across the organization. One third of the incremental value is created from using social applications within these functions.

Social media is a powerful communication and collaboration enabler. For one thing, most employees are already comfortably using public platforms and storing information there. Furthermore, these tools have a unique ability to catalyze rich and varied interactions as well as enable easy data searching and archiving. Finally, social platforms are not hamstrung by the technical, physical or behavioral limitations of existing email and knowledge management systems.

New research suggests that middle managers, in particular, will get a performance boost from using social technologies. Middle managers are important, expensive and skilled individuals who spend an inordinate amount of their time communicating in email, looking for data and attending meetings. Improving their effectiveness can significantly enhance organizational productivity, and decision-making. McKinsey estimates that middle managers that use social technologies in their everyday work could save 20-25% of their time and effort – and solve real business problems. In our experience, social media-enabling a firm can also unlock the latent creativity and problem solving skills of newly empowered workers as well as serve as a powerful tool for reinforcing corporate values and strategies.

We witnessed first hand how social media can improve a company’s performance. Our firm helped a major IT services provider develop a private-platform social media strategy to support customer service in their financial services business. The platform expedited the dissemination of time-sensitive information (e.g., upgrades, announcements) and reduced the time to respond to end user queries. Moreover, the firm unlocked the problem solving talents of hitherto overlooked employee groups. Productivity enhancements like these led to higher customer satisfaction scores and improved service team effectiveness and efficiency. Other companies such as Cisco and Dell are benefitting from internally focused social platforms.

Capturing social media’s value creation is more than choosing the right technology – although that is vital. The bigger challenge is on the organizational side. For example, managers need to consider how new social platforms will fit with their existing (and implicit) workflows. In many cases, these will have to be tweaked or new processes will have to be created. Furthermore, the leadership should seek to maximize employee participation across the enterprise. This will depend on the leadership commitment, the firm’s culture (i.e. is there an environment of sharing and trust?) and the employee’s inclination to embrace change. To improve the odds of successful change, managers should think about how their on and offline practices will co-exist, and how they can leverage proven change management methodologies like Gamification.

Companies in industries as diverse as consumer and industrial products, banking, IT and telecom looking to sustain growth and reduce risk will naturally evolve towards a high degree of business complexity. The level of complexity will be directly correlated with the range of products and services offered, the intricacies of the operations, and the organizational structures deployed. Not surprisingly, complexity (both visible and hidden) come with an expensive price tag including unnecessary input, production, and selling costs as well as operational lethargy. Companies that can eliminate needless complexity and prevent its return will build margins, increase agility and improve resource allocation.

Cutting complexity is a significant enterprise-wide opportunity for organizations. Complexity reduction projects can produce more than $10-million in annual savings by eliminating labour redundancies, consolidating raw material inputs and optimizing supply chain networks. Moreover, indirect benefits such as higher productivity, fewer errors, and better employee engagement were forecasted to generate up to twice the amount of direct savings. The Boston Consulting Group estimates firms with the right strategies and cost transparency can realize a 25% to 100% increase in profit margins.

Excessive complexity is often found in organizations with the following traits:

A strong ‘customer is king’ mission

Many companies go overboard satisfying customers with little regard to the long-term organizational impact. Managers regularly offer new products, features and marketing programs to customers as specials or targeted against small niche segments. Inevitably, product proliferation occurs, and with it comes complexity challenges around inventory management, production scheduling, and sales efforts.

Matrix-intensive organizations

For many firms, a matrix structure is the default organizational model. As these companies grow, so does the complexity especially when the structures and processes are poorly designed and implemented (e.g., overlapping roles & responsibilities, inadequate information flows, unclear decision rights). Complexity is manifested through process redundancy, increased conflict over mandate & priorities, and slower decision making.

Complicated supply chains

Most large firms maintain a large (often global) network of suppliers plugged into a convoluted supply chain. Managing this network is inherently difficult in the best of times. However, one small change in the external environment like adding a new supplier or connecting to a new IT system can dramatically increase operational complexity within the firm.

It should be pointed out that not all complexity is created equal. Clearly, some actions and choices are needed to reduce business risk, maintain core competitiveness and retain important clients. However, problems arise when the revenue or value derived from these activities is far below the actual, enterprise-wide cost of delivering them. The management challenge is to separate the good complexity from the bad complexity and to deal with the bad.

To do this, managers need visibility into the problem, some strategies for tackling complexity across the organization and the fortitude to prevent its return.

1. Understand the problem

You can only fix what you can see. Conduct a product, department or company-wide review to comprehend the scope of the complexity problem. You could start by analyzing how each SKU within the product portfolio or extensive activity in a major value chain contributes to revenue, margin or enterprise-wide cost.

2. Identify the culprits

Complexity follows the “80/20” rule – typically, 80% of complexity will trace to 20% of products or activities. The analytical challenge is to identify these 20% margin-killers, while safeguarding “good” complexity like strategic stock keeping units (SKUs) or prudent risk management activities. Once the culprits are identified, managers should break them down into their component parts for analysis. For example, SKUs can be broken down into ingredient and packaging inputs. A value chain can be mapped into discrete processes, touches and approvals etc.

3. Start Pruning

Once managers have the data, it’s time to reduce the logjam. Below are three common strategies for cutting complexity:

Consolidate and streamline

With products, look for opportunities to eliminate poorly performing SKUs and to consolidate the number of raw material and packaging inputs that go into the remaining portfolio. To reduce operational complexity, consider ways to minimize or remove unnecessary touches in areas like internal reviews, team & communication practices, and sub-optimal processes.

Bundle to increase standardization

Some companies have the ability to standardize complexity. For example, automotive and PC makers have been successful at combining dozens of product features, styles etc. into standard consumer bundles that could more readily be manufactured, inventoried and sold in volume.

Price for complexity

Some businesses must learn to live with certain complexity due to key client or regulatory demands. In these situations, managers should look to recoup some of the cost of complexity by raising prices – and communicating these reasons to customers so as to manage churn.

Never going back

Pruning can often be the easy part. The bigger challenge might be ensuring the complexity doesn’t not return. Managers need to take steps like instituting disciplined product line management systems to make sure complexity does not creep back.

Although a strong customer focus, powerful supply chain or large product portfolio can differentiate a company, it can also burden it with undue complexity – much of it hidden and insidious. Firms can unlock significant savings and accelerate the speed of their business by systematically tackling the complexity challenge.

If the popularity of Dilbert cartoons is any indication, middle managers do not enjoy a sterling reputation. They are often perceived as bumbling bureaucrats who get in the way of the real work being done in the sales, production or finance departments. New Wharton Business School research published in their Knowledge@Wharton newsletter may change that perception. The findings suggest that middle managers have a greater impact on company performance than the business strategy, organizational structure or contributions from individual innovators and leaders.

The author, management professor Ethan Mollick, studied the role of individual, team and strategic contributions on firm performance in the computer game industry. Specifically, he looked at “how performance changes as you combine different people in different companies in different ways.” He used the revenue of each company, controlling for costs, to measure corporate performance. Mollick’s research focused on the development of individual games over a 12 year period. These projects represented $4B of revenue and included 537 individual producers, 739 individual designers and 395 companies.

Mollick’s findings negated conventional wisdom that says: 1) performance differences between firms are due mainly to organizational factors – such as business strategy, leadership and practices – rather than to differences among employees and; 2) middle managers are typically interchangeable between companies, possessing few unique attributes that propel project success. Mollick concluded that it was middle managers, rather than innovators or company strategy, who best explained the differences in corporate performance. Within the research, managers accounted for 22.3% of the variation in revenue among projects, as opposed to just over 7% explained by innovators and 21.3% explained by the organization itself.

“Far from being interchangeable,” Mollick writes, middle managers “uniquely contribute to the success or failure of a firm…. Additionally, even in a young industry that rewards creative and innovative products, innovative roles explain far less variation in firm performance than do [middle] managers.” While innovators may come up with new games and new concepts, middle managers assume the more crucial role of project manager i.e. executing the initiatives. Specifically, they decide which ideas are given resources and figure out how to coordinate various initiatives within the larger organization. Other essential roles played by middle managers included motivating the team, managing budgets, ensuring a free flow of information and facilitating “collective creativity.” Fortunately for most employees and organizations, these are teachable skills.

In order to see if these skills were transferable, Mollick analyzed individuals who moved between companies. He found that middle managers who switched employers had an even larger impact on performance than those who remained within organizations. “This is not about a person being a good fit in just one specific organization. Their skills are useful anywhere.” It’s more evidence that managers are not “cogs in a machine. There is something innate in them that make them good at what they do.” A middle management “skill set” appears to be a prerequisite for driving performance in industries and fields that value knowledge, problem-solving and collaboration, like software, advertising, life sciences and professional services.

The above conclusions, however, do not necessarily translate to scale-driven, process-based industries. In these enterprises, Mollick writes, “Individual workers are ultimately replaceable and interchangeable with others who have received the same extensive training.” The business model “does not rely on any individual worker’s skills but rather firm-level processes to hire and train the appropriate individuals for the appropriate roles.”

Mollick’s conclusions have a number of organizational implications:

Pay closer attention to hiring and fostering the right skill set, and less so on corporate fit;

Conventional wisdom says that employees disengage when their managers frequently repeat the same messages. In this line of thinking, people would view repetitive communicating as nagging and tune out. Worst case, nagging would breed resentment of the manager and create strife. Perhaps this is the case, but do the benefits of redundant communications outweigh its perceived challenges? New research out of The Harvard Business School explored the impact of persistent communications on message acceptance and effectiveness.

The researchers studied the daily communication patterns of 13 project managers in 6 firms in the IT, health care and telco sectors. The findings were conclusive: those managers who are deliberately redundant communicators drive their projects forward more quickly and smoothly than those who are not. However, there was a caveat. The amount of direct organizational power had a major influence on the frequency and type of communication as well as the pace of team performance.

In many companies, PMs do not possess power over the people and projects they coordinate. Since they lack direct authority, these managers understand that they must work harder at influencing and directing others. As such, they will attempt to enlist support from team members through more repetitive communications. For example, they will time first and second messages close together, typically starting with a phone call or face-to-face meeting followed up by an e-mail. Not surprisingly, higher frequency communications will create a greater sense of individual urgency and quicker follow up, very often leading to higher team performance.

On the other hand, PMs who possess direct power will tend to communicate less frequently, at least initially. Relying more on their formal authority, these PMs will often delay communicating. Typically they would only send one e-mail, assuming that one notice is enough to incite an employee to undertake their task. Because a sense of urgency is not always created, the recipient may not feel a strong impetus to action. As a result, team performance can suffer in the short term, forcing the PM to re-exert their authority to get the project back on track.

Surprisingly, the researchers found that message clarity mattered less than repetition in boosting team performance. It’s not the message but rather the frequency of the message that matters in driving results.

In spite of the differences in communication styles, the study found that both types of PMs delivered on the same deadlines and budget goals with the same frequency regardless of the amount of power. However, managers who communicated more frequently over different channels got employees to perform at a higher level, and with less mop-up needed later. While some employee resentment would naturally occur, the performance benefits of persistent communications were clear.

How can managers leverage the power of redundant communications without breeding antagonism?

Include and publicize high-frequency communication strategies as part of a standard project management or employee communication process;

Utilize advanced and automated collaboration management tools that makes the software the nagger;

Make high frequency communication strategies a part of standard employee training and on-boarding.

There is something wrong with executive education when substantial amounts of spending and effort, particularly in the areas of strategic thinking and change management, do not appreciably improve the overall level of middle manager performance. Even though I teach executive education (strategy and organizational transformation) at a top business school, I have yet to see definitive research that links high levels of executive education with increased and sustained rates of individual and corporate performance.

For the foreseeable future, corporate learning will remain a staple of executive efforts to improve productivity and the level of human capital. Enhancing middle management performance makes intuitive sense. Furthermore, corporate education provides a number of ancillary benefits including enhanced morale and team building. Yet, what can be done to close the educational gap between intent and performance?

In my experience, there are many causes for poor executive educational performance. For example, educators often have insufficient real-world and cross-functional business experience to teach complex subjects like strategy and change. Secondly, student are rarely taught how to think strategically as opposed to using blunt instruments like benchmarking and SWOT analysis.

Thirdly, most programs rely on traditional lecturing and case studies to transmit information. Although this pedagogy has some advantages, it is not the best approach to imparting knowledge and triggering behavioral change. Finally, most courses are siloed in terms of content and intent. However, most managers recognize that problems and opportunities are never limited to one functional area or issue.

Given these challenges, what can firms do to improve educational effectiveness and pay back?

Increase relevance through customization

Many generic subjects like project management can be effectively taught in all organizations. However, some complex areas such as change management and strategy are best taught by incorporating the company’s competitive challenges as well as organizational considerations into the content.

Utilize practitioners who can facilitate

Not only do practitioners bring greater credibility to the classroom but they will also be able to convey richer insights and experiences as well as stimulate peer-based learning.

Leverage experiential methods

There is extensive research has shows that experiential teaching methods – simulations, games, and role plays – are superior to any other form of knowledge diffusion.

Teach strategic thinking

Typical strategy courses focuses on the “what” of strategy development and problem solving but little in terms of “how” you would accomplish this. On the other hand, our programs emphasize learning-by-doing through the use of powerful tools such as problem visualization, making sense of data and business case development.

Follow up

Sobering research says that 90% of everything we learn is forgotten 72 hours after we are first exposed to it. Given this, we should not be surprised when individuals do not leverage their learnings in their jobs. To drive real behavioral changes, corporate education must be an ongoing process and feature regular diagnostic checkpoints.

Measure the results

Like any other investment, educational effectiveness and payback needs to be periodically measured through the actions of individuals & teams and the outcomes of their projects.

Companies too often ignore or merely pay lip service to understanding why expensive, high profile initiatives (e.g., new product launches, acquisitions and geographic expansions) fail. There are obvious reasons for this including the desire to avoid embarrassment, a lack of relevant or timely information and internal politics. However, this painful process must be undertaken. Large organizations maintain market biases, organizational gaps and strategic flaws that can handicap all plans and activities. Often, the flaws are hidden, are difficult to separate from the cultural fabric or, even if acknowledged, are difficult to overcome. Understanding and preempting an institutional predilection for failure will go a long way in reducing business risk and improving the odds of success with new initiatives.

One approach I use is adapted from Strategic Studies. In this academic discipline, generals, analysts and historians use failure analysis to understand what went wrong with military encounters so history does not repeat itself. One fine example of this thinking is Cohen and Gooch’s book, Military Misfortunes: The Anatomy of Failure in War. The authors use various military setbacks as case studies to highlight 3 common military failures: of anticipation, of learning and of adaptation.

Within a business context, a failure to anticipate occurs when executives are caught napping by a strong competitive move because they either misread or ignore market signals. A failure to learn takes place when Companies continue to execute the same, ineffectual strategies despite evidence or experience that they don’t work. Finally, a failure to adapt arises when executives don’t adjust their plans when faced with unforeseen and threatening competitive actions that don’t jive with conventional wisdom or their previous successes.

Performing an objective and comprehensive debrief is one of the best guarantors that failures do not repeat themselves-at least in the short term. Once Companies understand the institutional basis for failure they can deploy a variety of process tools and organizational changes to preempt (most) future setbacks. Moreover, these enhancements can also better align strategy with metrics, improve communication flows, augment knowledge management and improve market analysis, synthesis and reporting.

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About Mitchell Osak

Mitchell is a management consultant with a passion for strategy development and execution. He has 20+ years of consulting and senior operational experience in a variety of Fortune 1000 firms. Mitchell is considered an "un-consultant" for his collaborative approach, expert problem solving and holistic strategic insights. His email is: mosak@quantaconsulting.com